University of Southern California
University of Southern California Law and Economics Working Paper Series
On Public versus Private Provision of Corporate Law
Abstract
Law in modern market societies serves both democratic and economic functions. In its economic function, law is a service, a means of enhancing the value of transactions and organizations. Yet modern market economies continue to rely on the state, rather than the market, to provide this service. This paper investigates whether private provision of law may be superior to public provision. We look in particular at corporate law, where there is a substantial literature exploring the efficiency implications of "regulatory competition" and compare this competition with market competition between private providers. Drawing from the well-known framework of spatial models of imperfect competition, we argue that while neither public nor private competition may lead to the optimal corporate law regimes, there are at least some reasons to believe that private provision may be preferable. Specifically, we present a model that demonstrates in which regulatory competition is likely to produce widespread emulation, and little innovation. Private competition, in contrast, is more likely to lead to greater "product" differentiation, which benefits heterogeneous consumers of corporate law services in the short term. Moreover, such differentiation also has long-term benefits, as providers are able "learn" more about business organizations' demand-side characteristics, and thus tailor their services to business needs more effectively.
Subject Area
Corporations
Recommended Citation
Gillian Hadfield and Eric Talley,
"On Public versus Private Provision of Corporate Law"
(September 2004).
University of Southern California.
University of Southern California Law and Economics Working Paper Series.
Working Paper 13.
http://law.bepress.com/usclwps/lewps/art13
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